As we begin a new year, employers have several significant policy questions unanswered and a myriad of employment and workplace changes and deadlines looming. What other challenges will be encountered? We hope that the following condensation of 2019 and look at 2020 will be helpful.

Team News and Accolades

New team member Daniel Stander, Solicitor, joined Vedder Price in July 2019 with several years of experience in managing both non-contentious and contentious matters for employers and senior executives. In particular, he provides counsel and representation across a range of workplace issues including unfair dismissal, discrimination and whistleblowing claims, and advises on preparing and negotiating settlement agreements. Daniel advises clients in diverse business sectors on disciplinary, grievance and redundancy processes, employment contracts, consultancy agreements and company policies.

The Vedder Price London team is recommended by Legal 500 2019 United Kingdom in the Human Resources – Employment category. Jonathan Maude is also individually editorially recommended. 

“Vedder Price’s group provides ‘excellent service and advice’ across a broad range of contentious and non-contentious employment matters, with particular expertise in cross-border issues.”

Chambers UK 2020 ranked Jonathan Maude as a Recognised Practitioner and Esther Langdon as an Associate to Watch.

Esther Langdon is a contributor to the Employment Law Association Working Group, creating guidelines and policy on parental leave.

Year End Awaited Cases

Supreme Court

 Various Claimants v. WM Morrisons Supermarket PLC

Was Morrisons vicariously liable for employee’s data breach?

Asda Stores, Ltd v. Brierley and others

Can workers in retail stores compare themselves to those working in distribution depots with respect to equal pay?

Ali v. Capita Customer Management Ltd and Hextall v. Chief Constable of Leicestershire Police

Is failure to pay male employees enhanced shared parental pay discriminatory?

Uber BV and others v. Aslam and others

Are Uber driver “workers” entitled to holiday pay and national minimum wage?

2020 Key Dates for HR and People Teams 

Save the Date

Vedder Price will host our annual employment roundtable seminar on 17 June 2020.

Join us for our annual look at the year ahead in employment law. Our panel will discuss the “hot topics” and emerging challenges for employers, and how best to prepare for them. We look forward to seeing you there!

We appreciate having received instructions and new engagements throughout 2019 from our continuing company clients, many of whom have been with Jonathan, Esther and other colleagues at Vedder Price for considerable periods of time. And, we also extend a warm welcome to the numerous new companies and individuals who have engaged Vedder Price for the first time within the last 12 months. Please accept our warm wishes for the New Year ahead

If you would like assistance with any of the matters discussed or to RSVP to our upcoming roundtable, please contact Jonathan Maude at +44 (0)20 3667 2860, Esther Langdon at +44 (0)20 3667 2863 or Daniel Stander at +44 (0)20 3667 2861. These materials are of a general nature and are not a substitute for legal advice.

On December 30, 2019, a federal District Court issued a Temporary Restraining Order (TRO) against the State of California temporarily enjoining the State from enforcing Assembly Bill 51 (AB 51) —the new California law prohibiting mandatory arbitration agreements in employment. The TRO will remain in place until a full preliminary injunction hearing can be held on January 10, 2020.¹ As we recently discussed in the Vedder Price 2020 California Employment Law Roundup, AB 51, signed into law on October 10, 2019 and slated to take effect on January 1, 2020, prohibits employers from requiring applicants or employees in California to agree, as a condition of employment, continued employment, or the receipt of any employment-related benefit, to arbitrate claims involving violations of the California Fair Employment and Housing Act (FEHA) or the California Labor Code. AB 51 makes it a criminal misdemeanor for an employer to violate this new law.

On December 9, 2019, the California Chamber of Commerce and several other trade organizations filed a lawsuit in federal District Court seeking to enjoin enforcement of AB 51 on the grounds that it was preempted by the Federal Arbitration Act (FAA). Although AB 51 does not specifically mention “arbitration” — it instead broadly applies to the waiver of “any right, forum, or procedure for a violation of [the FEHA or Labor Code], including the right to file and pursue a civil action…” — it clearly and directly impacts mandatory arbitration agreements. In issuing the TRO temporarily restraining enforcement of AB 51, U.S. District Court Judge Kimberly J. Mueller noted that “serious questions [exist] regarding whether [AB 51] is preempted by the Federal Arbitration Act.”

The U.S. Supreme Court has repeatedly held that the FAA preempts state laws that single out arbitration agreements for disfavored treatment. Courts may invalidate arbitration agreements based on “generally applicable contract defenses” but not legal rules that apply only to arbitration. Judge Mueller cited in her TRO the recent Supreme Court decision Kindred Nursing Ctrs. Ltd. P’ship v. Clark,² holding that the FAA preempts any state rule that facially discriminates against arbitration or that covertly accomplishes the same objective by disfavoring contracts that contain the features of arbitration
agreements. Thus, it appears the District Court may follow precedent and issue a preliminary injunction enjoining enforcement of AB 51. We will issue a further update after the hearing on January 10, 2020.

If you have any questions regarding the topics discussed in this article, please contact Thomas H. Petrides at +1 (424) 204 7757, Harrison Thorne +1 (424) 204 7704 or any Vedder Price attorney with whom you have worked.

From December 11 - 17, 2019, Vedder Price participated in a “Week of Giving” as part of the Vedder Cares program and to give back to the communities in which we operate in this holiday season. The Chicago, San Francisco, Washington, DC, Los Angeles, New York and London offices each held their own gift drives alongside holiday celebrations throughout the week. 

In Chicago, employees collected over 100 gifts for Letters to Santa, sending clothes, toys, and other holiday essentials to underprivileged children in the Greater Chicago area. In addition, the office also collected donations and resident requested items for Misericordia, a nonprofit which assists persons with mild to profound developmental disabilities. San Francisco and Washington, DC participated in a toy collection for Toys for Tots, a program run by the United States Marine Corps Reserve which distributes toys to children whose parents are unable to afford Christmas gifts. The New York office collected gifts for Kids for Kids, an organization that supports children and families struggling with medical challenges. In Los Angeles, employees worked with the Brown Bag Lady to stuff socks with essentials for people living on Skid Row. The London office participated in Christmas Jumper Day, an event benefiting Save the Children UK where employees made a donation to the charity allowing them to wear a holiday sweater for the day.

In addition to the gift drives, employees also took part in various competitions on behalf of a chosen charity. Chicago, San Francisco, New York and Washington, DC held Ugly Sweater competitions, with the winner receiving a check to their designated charity from the firm. The Los Angeles office held a cookie competition, again awarding the winner with a donation to their chosen charity. For more information or to learn how to support the charities mentioned above, please follow the links below. 

About Letters to Santa:

Letters to Santa aims to rebuild hope where it’s been damaged or lost. We work with those in need, those who are underprivileged, and those who are under served. Our focus lies on community efforts, including clothing, toys, food aid, and community awareness. We firmly believe it takes a village to raise a child, and if you work on creating the most well equipped society you can, so many problems simply work themselves out. To learn more about Letters to Santa, click here.

About Misericordia:

Misericordia offers a community of care that maximizes potential for persons with mild to profound developmental disabilities, many of whom are also physically challenged. By serving society’s most vulnerable citizens, Misericordia also serves the families who want the best for them, yet cannot provide it at home.. To learn more about Misericordia, click here.

About Toys for Tots:

The Foundation raises funds, purchases toys, provides promotional and support materials, manages all funds raised and donated, solicits corporate support, educates the public, and handles day-to-day operations. Presently, the Marine Toys for Tots Program distributes an average of 18 million toys to 7 million less fortunate children annually. To learn more about Toys for Tots, click here.

About Kids for Kids:

Kids for Kids Foundation is a community of friends, families, and colleagues raising money for organizations that support children and families struggling with medical challenges. Our family-focused events celebrate all that we have to be grateful for and serve to inspire the next generation of humanitarians – our children. When a child becomes sick or struggles with health issues, it impacts the entire family unit, turning all of their lives upside down. That is why we focus on supporting organizations that serve both children and their families. To learn more, please click here.

About Brown Bag Lady:

Brown Bag Lady started in March 2014. The organization collects clothes and other donations as well as provides meals on Christmas day to residents of Skid Row. To learn more, please click here.

About Save the Children UK:

Save the Children exists to help every child reach their full potential. We make sure children stay safe, healthy and keep learning. We find new ways to reach children who need us most, no matter where they’re growing up. On Friday December 13, millions of people across the UK wear a silly jumper and donate £2 towards the charity. To learn more, please click here.

Labor and Employment Shareholder Sadina Montani appeared in an interview on Fox5 DC on Sunday, December 1 to discuss her involvement with the Greater DC Diaper Bank and their 2019 Diaper Drive.

During the interview Ms. Montani not only discussed the need many families face in obtaining diapers and baby hygiene products, but also the difficulty associated with asking for help. Ms. Montani states, “In the DC region one in three families experience diaper need. This is a need that is largely unseen and masked in a lot of shame. Our work is to enable families to get those essentials that they need to thrive.”

As the President of the DC Diaper Bank’s Board of Directors, Ms. Montani works extensively with the organization to provide much needed supplies to families in the DC area. Although the interview focuses on the current Diaper Drive, Ms. Montani describes the Greater DC Diaper Bank as both a diaper and a hygiene bank. “We equip families not just with diapers, but with all sorts of essentials. We also provide period products, formula, wipes and all the essentials families in our area need.”

To watch Sadina’s interview in full, click here. 

To learn more about the Greater DC Diaper Bank, click here.

In this issue:

• SEC Proposes Rule Changes for Proxy Advisory Firms
• SEC Proposes Amendments to Shareholder Proposal Rule 
• SEC Proposes Amendments to Modernize Adviser Advertising and Solicitation Rules
• SEC Extends Temporary Relief for MiFID II-Compliant Research Payments
• SEC Staff Updates Prior Accounting Guidance and Publishes Accounting Matters Bibliography
• SEC Staff Issues Form CRS FAQs
• Remarks of Dalia Blass at the ALI CLE 2019 Conference on Life Insurance Company Products

Download the Investment Services Regulatory Update below. 

The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury has broad delegated authority to administer and enforce the sanctions laws and related sanctions programs of the United States. As a key component of its enforcement authority, OFAC may investigate “apparent violations” of sanctions laws and assess civil monetary penalties against violators pursuant to five statutes, including the Trading with the Enemy Act and the International Emergency Economic Powers Act.¹

An “apparent violation” involves “conduct that constitutes an actual or possible violation of U.S. economic sanctions laws.”² An OFAC investigation of an “apparent violation” may lead to one or more administrative actions, including a “no action” determination, a request for additional information, the issuance of a cautionary letter or finding of violation, the imposition of a civil monetary penalty and, in extreme cases, a criminal referral.³ Investigations of apparent violations by OFAC often lead to negotiated settlements where a final determination is not made as to whether a sanctions violation has actually occurred.⁴

Upon the conclusion of a proceeding that “results in the imposition of a civil penalty or an informal settlement” against or with an entity (as opposed to an individual), OFAC is required to make certain basic information available to the public.⁵ In addition, OFAC may release on a “case-by-case” basis “additional information” concerning the penalty proceeding,⁶ and it often does. Such additional information will sometimes include informal compliance guidance, cautionary reminders and best practices recommendations. Such information is routinely consumed by corporate compliance officers seeking fresh insight on ever-evolving compliance and enforcement trends, particularly in the context of proceedings relating to industries with which they are involved.

On November 7, 2019, OFAC released enforcement information that has caught the attention of the aircraft leasing community, particularly U.S. aircraft lessors and their owned or controlled Irish lessor subsidiaries.⁷ The matter involved a settlement by Apollo Aviation Group, LLC⁸ of its potential civil liability for apparent violations of OFAC’s Sudanese Sanctions Regulations (SSR) that existed in 2014–5.⁹ Although the amount of the settlement was relatively modest, the enforcement activity by OFAC in the proceeding has attracted scrutiny by aircraft lessors because, for the first time in recent memory, a U.S. aircraft lessor has paid a civil penalty to OFAC for alleged sanctions violations.

At the time of the apparent violations, Apollo was a U.S. aircraft lessor which became involved in two engine leasing transactions that came back to haunt it.

In the first transaction, Apollo leased two jet engines to a UAE lessee which subleased them to a Ukrainian airline with which it was apparently affiliated. The sublessee, in turn, installed both engines on an aircraft that it “wet leased”¹⁰ to Sudan Airways, which was on OFAC’s List of Specially Designated Nationals and Blocked Persons within the meaning of the “Government of Sudan.” Sudan Airways used the engines on flights to and from Sudan for approximately four months before they were returned to Apollo when the lease ended. Meanwhile, in a separate transaction, Apollo leased a third jet engine to the same UAE lessee, which subleased the engine to the same Ukrainian airline, which installed the engine on an aircraft that it also wet leased to Sudan Airways. Sudan Airways used the third engine on flights to and from Sudan until such time as Apollo discovered how it was being used and demanded that the engine be removed from the aircraft.

Both leases between Apollo and its UAE lessee contained restrictive covenants “prohibiting the lessee from maintaining, operating, flying, or transferring the engines to any countries subject to United States or United Nations sanctions.”¹¹ Thus, by allowing the engines to be installed by its sublessee on aircraft that were eventually wetleased to Sudan Airways, and flown to and from Sudan during the country’s embargo, the lessee presumably breached the operating restrictions and covenants imposed by Apollo in the leases. Moreover, once Apollo learned that the first two engines had been used, and the third engine was being used, for the benefit of Sudan Airways, it demanded that the third engine be removed from the aircraft that the sub-lessee had wet-leased to Sudan Airways, and this was done.¹²

One might reasonably conclude from these facts that Apollo acted like a good corporate citizen. So what did Apollo do wrong from a sanctions compliance standpoint?

OFAC stated that Apollo may have violated section 538.201 of the SSR, which at the time “prohibited U.S. persons from dealing in any property or interests in property of the Government of Sudan,”¹³ as well as section 538.205 of the SSR, which at the time “prohibited the exportation or re-exportation, directly or indirectly, of goods, technology or services, from the United States or by U.S. persons to Sudan.”¹⁴

What are the takeaways and possible lessons to be drawn by aircraft lessors from this settlement based upon these alleged violations and the facts upon which they were based?

First, according to OFAC, Apollo did not “ensure” that the engines “were utilized in a manner that complied with OFAC’s regulations,” notwithstanding lease language that effectively required its lessee to comply.¹⁵ OFAC is clearly suggesting here that aircraft lessors have a duty to require sanctions compliance by their lessees. And, in view of the fact that many sanctions programs are enforced on a strict liability basis, OFAC’s comment that Apollo failed to “ensure” compliance by its lessee and sublessees makes sense. Apollo was not in a position to avoid civil liability by hiding behind the well-drafted language of its two leases. If a sanctions violation occurred for which Apollo was strictly liable, the mere fact that its lessee’s breach of the lease was the proximate cause of the violation would not provide a safe harbor. 

As an example of Apollo’s alleged failure to “ensure” legal compliance, OFAC observed that Apollo did not obtain “U.S. law export compliance certificates from lessees and sublessees,”¹⁶ a comment which is somewhat puzzling. To our knowledge, there is nothing in the law requiring a lessor to obtain export compliance certificates, at least not in circumstances where an export or re-export license is not otherwise required in connection with the underlying lease transaction. Moreover, as a practical matter, it would be difficult, at best, for an aircraft lessor to force the direct delivery of certificates from a sublessee or sub-sub-lessee with whom it lacks privity of contract. In view of the foregoing, one assumes that OFAC was looking for Apollo to install procedures by which its lessee would self-report on a regular basis its own compliance (and compliance by downstream sublessees) with applicable export control laws and the relevant sanctions restrictions contained in the lease.

Second, OFAC found that Apollo “did not periodically monitor or otherwise verify its lessee’s and sublessee’s adherence to the lease provisions requiring compliance with U.S. sanctions laws during the life of the lease.”¹⁷ In this regard, OFAC observed that Apollo never learned how and where its engines were being used until after the first two engines were returned following lease expiration and a post-lease review of engine records, including “specific information regarding their use and destinations,” actually conducted.

In view of the foregoing, OFAC stressed the importance of “companies operating in high-risk industries to implement effective, thorough and on-going, risk-based compliance measures, especially when engaging in transactions concerning the aviation industry.”¹⁸ OFAC also reminded aircraft and engine lessors of its July 23, 2019, advisory warning of deceptive practices “employed by Iran with respect to aviation matters.”¹⁹ While the advisory focused on Iran, OFAC noted that “participants in the civil aviation industry should be aware that other jurisdictions subject to OFAC sanctions may engage in similar deception practices.”²⁰ Thus, according to OFAC, companies operating internationally should implement Know Your Customer screening procedures and “compliance measures that extend beyond the point-of-sale and function throughout the entire business of lease period.”²¹

As a matter of best practices, aircraft lessors should implement risk-based sanctions compliance measures throughout the entirety of a lease period, and most do. Continuous KYC screening by lessors of their lessees and sublessees is a common compliance practice. Periodic reporting by lessees as to the use and destination of leased aircraft and engines appears to be a practice encouraged by OFAC.²² Lessors can also make it a regular internal practice to spot check the movement of their leased aircraft through such web-based platforms as Flight Tracker and Flight Aware. If implemented by lessors, such practices may enable early detection of nascent sanctions risks and violations by their lessees and sublessees.

Finally, OFAC reminded lessors that they “can mitigate sanctions risk by conducting risk assessments and exercising caution when doing business with entities that are affiliated with, or known to transact business with, OFAC-sanctioned persons or jurisdictions, or that otherwise pose high risks due to their joint ventures, affiliates, subsidiaries, customers, suppliers, geographic location, or the products and services they offer.” Such risk assessment is an integral part of the risk-based sanctions compliance program routinely encouraged by OFAC, as outlined in its Framework for OFAC Compliance Commitments on May 2, 2019.²³ For aircraft and engine lessors, conducting pre-lease due diligence on the ownership and control of prospective lessees and sublessees, as well as the business they conduct, the markets they serve, the equipment they use and the aviation partners with whom they engage, are key to identifying and understanding the sanctions risks that a prospective business opportunity presents. 

^{1 See U.S. Department of the Treasury, Office of Foreign Assets Control, Inflation Adjustment of Civil Monetary Penalties, Final Rule, 84 Fed. Reg. 27714, 27715 (June 14, 2019).}

^{2 31 C.F.R. Part 501, Appendix A, Section I.A.}

^{3 31 C.F.R. Part 501, Appendix A, Section II.}

^{4 31 C.F.R. Part 501, Appendix A, Section V.C.}

^{5 31 C.F.R. §501.805(d)(1). Such information includes “(A) [t]he name and address of the entity involved, (B) [t]he sanctions program involved, (C) A brief description of the violation or alleged violation, (D) [a] clear indication whether the proceeding resulted in an informal settlement or in the imposition of a penalty, (E) [a]n indication whether the entity voluntarily disclosed the violation or alleged violation to OFAC, and (F) [t]he amount of the penalty imposed or the amount of the agreed settlement.” Id. OFAC communicates all such information through its website. 31 C.F.R. § 501.805(d)(2).}

^{6 31 C.F.R. § 501.805(d)(4).}

^{7 See OFAC Resource Center, Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Apollo Aviation Group, LLC (Nov. 7, 2019) (https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20191107_33.aspx) (the Settlement Announcement).}

^{8 In December 2018, Apollo was acquired by The Carlyle Group and currently operates as Carlyle Aviation Partners Ltd. According to the Settlement Announcement, neither The Carlyle Group nor its affiliated funds were involved in the apparent violations at issue. See id. at 1 n.1.}

^{9 See 31 C.F.R. Part 538, Sudanese Sanctions Regulations (7-1-15 Edition). Note that most sanctions with respect to Sudan were effectively revoked by general license as of October 2, 2017, thereby authorizing transactions previously prohibited by the SSR during the time period of the apparent violations by Apollo. However, as is true when most sanctions programs are lifted, the general license issued in the SSR program did not “affect past, present of future OFAC enforcements or actions related to any apparent violations of the SSR relating to activities that occurred prior to the date of the general license.” Settlement Announcement at 1 n.2. See also OFAC FAQ 532 (https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_other.aspx#sudan_whole).} 

10 ^{A “wet lease” is “an aviation leasing arrangement whereby the lessor operates the aircraft on behalf of the lessee, with the lessor typically providing the crew, maintenance and insurance, as well as the aircraft itself.” See Settlement Announcement at 1 n.3.}

^{11 Id. at 1.}

^{12 Unfortunately, Apollo did not learn that the first two engines were used in violation of lease restrictions until they were returned following lease expiration and it conducted a post-lease review of the relevant engine records.} 

^{13 The alleged application of section 538.201 to Apollo in the circumstances confirms the broad interpretive meaning that OFAC often ascribes to terms such as “interest,” “property,” “property interest” and “dealings,” which appear in many sanctions programs.}

^{14 The alleged application of section 538.205 to Apollo in the circumstances suggests that a U.S. lessor of aircraft and jet engines may be tagged with the “re-export” of such goods and related services from one foreign country to another, notwithstanding the existence of a contractual daisy-chain of lessees, sub-lessees, and/or wetlessees that actually direct and control such flight decisions. In the context of U.S. export control laws, the Export Administration Regulations (EAR) define the term “re-export” to include the “actual shipment or transmission of an item subject to the EAR from one foreign country to another foreign country, including the sending or taking of an item to or from such countries in any manner.” 15 C.F.R. § 734.14(a)(1). Thus, for export control purposes, the flight of an aircraft subject to the EAR from one foreign county to another foreign country constitutes a “re-export” of the aircraft to that country.} 

^{15 Settlement Announcement at 1.}

^{16 Id.}

^{17 Id., at 1–2.}

^{18 Id. at 3. (emphasis added).}

^{19 Id. See OFAC, Iran-Related Civil Aviation Industry Advisory (July 23, 2019) (https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20190723.aspx)}

^{20 Id.}

^{21 Id. (emphasis added).}

^{22 In Apollo, OFAC reacted favorably to certain steps alleged to have been taken by Apollo to minimize the risk of the recurrence of similar conduct, including the implementation of procedures by which Apollo began “obtaining U.S. law export compliance certificates from lessees and sublessees.” Id.}

^{23 See https://www.treasury.gov/resource-center/sanctions/Documents/framework_ofac_cc.pdf.}

Please join us at the following session designed for in-house counsel and human resource professionals, led by the Labor & Employment attorneys of Vedder Price. At this complimentary session, we will discuss important legal updates and labor and employment best practices.

Event Details

Thursday, April 2 | 8:00 a.m. - Noon (CT)

Chicago Westin O'Hare | Rosemont, IL
6100 N. River Rd., Rosemont, IL 60018

Breakfast provided; Lunch to follow for those participating in the California and UK breakout lunch session from Noon - 1:00 p.m.


Who should attend: This event is intended for in-house counsel and human resource professionals.

Agenda Topics

Agenda topics to be announced.

Optional Breakout Lunch Topic

We invite you to stay to join us from Noon to 1:00 p.m., after our main program concludes, for our optional CLE breakout lunch session, entitled:

California & UK Employment Law Developments

CLE & HRCI Credit

Vedder Price is an accredited CLE provider in California, Illinois, and New York; and, when possible, a sponsor in Virginia.

HRCI credit may be made available.

 

To learn more about other 2020 Vedder Works seminars and webinars, please click here.